The Bitcoin Collapse Is Taking El Salvador’s Big Bet With It

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The ongoing cryptocurrency crash has wiped out more than half of El Salvador’s Bitcoin hoard.

The Nayib Bukele tracker, named after the country’s Bitcoin-obsessed president, keeps track of each purchase announced by the country, as well as the cost basis, total reserves, and average cost basis of those reserves. Bukele paid $105.6 million for 2,301 Bitcoins at an average cost of $45,908 each. With the price of Bitcoin currently hovering around $22,000, El Salvador’s reserves have lost 51% of their value and are now worth $51.6 million.

El Salvador’s embrace of Bitcoin has been bombastic, and it has been widely condemned by critics both inside and outside the country. Moody’s downgraded the country’s debt shortly before its most recent purchase on May 9. Previously, in January, the IMF recommended that El Salvador liquidate its Bitcoin holdings and abandon the cryptocurrency as legal tender, prompting an angry response from the government, with Treasury Minister Alejandro Zelaya declaring on local television that “no international organization is going to make us to do anything, anything at all.”

A Bitcoin bond was planned to help finance the currently unbuilt “Bitcoin City,” of which Bukele unveiled a gold scale model last month. Bukele envisions a geothermal city built in the shadow of a volcano that also serves as a tax haven, but details on how any of this would be built are scarce.

El Salvador, on the other hand, does not appear concerned. At a press conference on Monday, Zelaya stated that the price collapse of Bitcoin posed a “extremely minimal” fiscal risk because it represents about half a percentage point of the national general budget.

El Salvador, one of Bitcoin’s largest publicly known holders, has been posting massive on-paper losses amid the ongoing crash. Michael Saylor’s MicroStrategy has 129,218 Bitcoins worth $2.9 billion that were purchased for nearly $4 billion (a loss of 26 percent). Saylor has a $205 million loan with Silvergate that was used to purchase some of that Bitcoin, which may necessitate a margin call if Bitcoin falls below $21,000 (as it briefly did on Tuesday morning), though the CEO stated that MicroStrategy had funds to manage a price drop to as low as $3,652.

Tesla stated in a February filing with the SEC that it purchased $1.5 billion in the crypto token in 2021 and held nearly $2 billion by the end of the year. Bitcoin has dropped more than 50% in the same time frame, and Tesla’s gains were reportedly erased as early as May.

It’s unlikely that the suffering will end anytime soon. Other crypto-related companies are bracing for a “crypto winter,” with venture capital firm Andressen Horowitz predicting “dark days ahead” and Coinbase canceling job offers last week before announcing plans to lay off 18 percent of its workforce today (and promptly cutting fired employees access to workplace systems).

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